AMA with Alex DiNunzio and Jay Ciruolo from AssetBlock

Every week, we hold an AMA on our invite-only ecosystem slack channel, to foster conversations geared towards building trusted infrastructure for the borderless economy. If you would like to contribute to growing the Algorand ecosystem, follow the instructions at the bottom of this article and join our core team, partners, ambassadors, and top community members as we share innovative ideas, feedback, and updates on all the different facets of the Algorand project.

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AMA Transcript | October 10, 2019

Introduction

Hiya all! Let's welcome our guests from AssetBlock! 

Meet:

Alex DiNunzio who graduated from Harvard Business School. Alex served as Director of Product for www.fuze.com -- a cloud based communications platform -- and helped generate more than $100 million recurring revenue. He has now started as Head of Product for AssetBlock, a project tackling the $7 Trillion real estate market.

Alex is joined by Jay Ciruolo who is Head of Engineering for AssetBlock. Before AssetBlock,, Jay spearheaded the front-end engineering team at PathAI -- a med-tech startup pairing deep learning & pathology. He brings with him experience from CarGurus & HubSpot as well!

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Daniel:

So Alex and Jay! Let’s start with you guys. You both have diverse backgrounds from SaaS (Fuze) to Hubspot. What brought you to the Blockchain space?

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Alex (AssetBlock): 

Originally, it was about getting to the bleeding edge and into a space that was undefined. I lost some of that in telecommunications over time as it was commoditized. Now that I am here, I believe that without strong business use cases generating revenue and global success, blockchains can’t proliferate the way we all want. This is something I want to help with through AssetBlock.

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Jay (AssetBlock): 

Actually, getting introduced to the folks at Algorand was one of my first forays into full-time development in the blockchain world. I'm fascinated by the tech and excited to have the opportunity to build on top of it. I have a history of choosing projects that are all about breaking down barriers and adding efficiencies to existing industries, and I think there's a lot of great opportunity to introduce design-oriented solutions to make this space more accessible by more folks who aren't necessarily as tech savvy as most crypto and blockchain users are today.

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Daniel: 

Thanks for the introductions! How has the journey been so far?

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Jay (AssetBlock): 

It's honestly been fascinating, Algorand is a great platform, and being so early has been really rewarding because it's allowed us to learn a lot about the core infrastructure and ways that blockchains work. We're excited about the prospect of what it can do for our core business case as well, introducing a lot of efficiencies and transparency into an industry that has been (historically) quite the opposite.

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Alex (AssetBlock): 

It’s also forced us into very open infrastructure questions that in traditional companies wouldn’t even be discussed.

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Daniel:
Glad to hear, coming into Algorand as a tech part shortly! Meanwhile let’s talk AssetBlock! What is it and how would it revolutionize currently hard to access $7 trillion property market? I think everyone here would love an elevator pitch ; )

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Alex (AssetBlock): 

Basically, AssetBlock is an investment platform focused on offering high-quality commercial real estate opportunities (like a hotel or an office building) to investors. Up until now, investments with these kinds of returns (often targeting between 15% and 25% IRR or more!) have been typically reserved for only the wealthiest and best-connected institutional investors. We work with top-tier real estate sponsors, who have access to these properties, in order to put them on AssetBlock. When the deal closes, we provide our investors with a token representing their ownership stake (one of the ways we are utilizing Algorand)

The investors using our platform are funding a non-controlling equity investment in a commercial property. Non-controlling means that our partners manage the property and execute their plans without any oversight or influence from us. While the equity investment provides investors with cash flows (derived from rent in an office building or hotel room fees) and appreciation of the investment.

Our investments are private placements, this means we offer investments directly to our investors. In doing so we can hand-pick opportunities that provide the right balance of cash distribution and appreciation (long term growth of the property).

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Daniel: 

Why Algorand? There are other open source & public blockchains out there. Which properties of Algorand work perfectly for your use case?

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Jay (AssetBlock):
I think this will echo many of the opinions shared by folks here already, but I’ll try to add a bit more color. The technology itself is best in class as far as we’re concerned regarding security, scalability, and speed. The prospect of transforming these overbearing and outdated processes from months down to seconds is exciting, and a perfect use case for Algorand’s proven performance metrics. There are a TON of barriers in the space right now that Algorand has the potential to abstract away for investors and partners alike.

For the extra context - many of us on the AssetBlock team have known members of the Algorand team for years now, and we have a lot of mutual respect for one another. We believe that Algorand is doing a lot right when it comes to the design and strategy behind the protocol as well - the named asset support and upcoming smart contract solutions will be incredibly helpful to the dApp space and I think they’ll do a lot to drive excitement and some unique solutions for folks to adopt it even more broadly.

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Daniel: 

So let's talk competition.  Real estate isn't what I would call without competitors. You have Harbor, Propy to name a few. There are multiple others operating out of NYC/ San Francisco.

Do you feel you have an edge compared to your competitors?

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Alex (AssetBlock): 

On the competitive side, there are plenty of competitors. I see that as a positive factor indicating that there is interest and a market. It’s almost too early to need to directly compare against any other blockchain-based platforms as we are all growing from scratch. The comparison we use here is more against off-chain competitors and trying to build a product that convinces someone to move their capital to a blockchain-based product instead.

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Daniel: 

Tokenizing properties leads to 'security tokens' with fractional ownership on property, correct? Do you feel it would create any regulatory hurdles or are you all clear on that area?

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Jay (AssetBlock): 

The idea at its simplest is that you take a large asset and break it into pieces and sell these pieces to individuals. In our case, the asset is a piece of real estate and we break that into digital pieces via tokens on Algorand, and sell these tokens to our investors. We handle all of the legal complexities for the transaction behind the scenes.

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Daniel:

When did you guys meet?

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Alex (AssetBlock):
I have worked with Algorand’s CEO for >10 years through Fuze and our CEO, Mike Liddell has worked with him for 25+ years. Through that time I built a massive amount of respect for Steve and how he runs his organizations. That trust + the technical prowess of the Algorand team is a powerful combo. Jay and I met close to 10 years ago as well through my wife working with him at CarGurus… at the time we were working on a side hustle to build an iOS based game… one of these days we will get back to that!

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Daniel:

OK, that's a fair point you do have a 7 trillion market in question here. So even among competitors, everyone can have a slice of pie so to say. Though if a winner takes all scenario emerges it would be interesting.

My next question would be on borderless economy. Currently, only US residents can invest correct? Is it possible for a farmer living in Africa/Asia or moderately wealthy individual (in future) to invest in say a condo in Las Vegas?

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Harry Boer:

Alex, you said, “Our investments are private placements, this means we offer investments directly to our investors,” and Jay added later, “We handle all of the legal complexities for the transaction behind the scenes.”

I have three questions:

1. I guess you’re domiciled in the US, right?

2. If so, do you need/have SEC approval?

3. Do you have a prospectus?

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Alex (AssetBlock):

I think I can answer Daniel’s question and Harry’s question at once…

AssetBlock is a US-based company, but we can do business in the US and overseas through a series of entities that we maintain. The idea is that we only enter in the restrictive regulatory burdens (e.g. RegD offerings) when we have to in order to allow US investors. This means it’s easiest for us to do deals with accredited investors (in the eyes of the SEC) and to expand to retail (non-accredited) over time.

The real trick to this is figuring out where the investor located. Do they have an SPV (Special Purpose Vehicle) in their home country or abroad? Then we match our investment registration requirements with theirs.

The prospectus part is going to be coming soon. We will outline our investment thesis and requirements. It is something that we are building right now with our partners in order to vet them for the platform and for us to do due diligence on the deals that they bring us.

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Harry Boer:

What’s the minimum investment requirement for accredited investors?

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Alex (AssetBlock):

Minimum investments vary by property. For deals with accredited investors, the range is wide $100K-500K. That hasn’t been a problem for us yet. When we expand a deal to retail investors, those minimums will drop accordingly to allow for maximum participation.

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Bilal Brahim:

Is the ISDA involved when you deal with a foreign country citizen?

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Alex (AssetBlock):

We have a global set of AML/KYC partners (and for accredited/qualified individual checks)  that help us vet global citizens. As long as our partners (and legal team) ok an investor, we proceed.

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Jose Garcia Caballero:

So you're not tokenizing the property itself, but the equity of the vehicle that owns it?

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Alex (AssetBlock):

Yes. tokenizing the SPV is the current model. They are single-purpose entities (one per investment). We are right now exploring the creation of a fund (think of an example of a hotel fund representing 10 hotels) and one SPV would own all of our ownership shares and therefore an investor would be able to make one investment into the fund and have their pro-rata share.

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Daniel:

I was wondering if you could shed light on taking loans/lending against a crypto/real estate combined portfolio.

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Jay (AssetBlock):

Investors who hold large amounts of crypto can choose to pay with crypto or take out collateralized loans to fund their investments on the platform (you use your crypto as collateral to borrow cash). This way, you don’t have to sell your digital assets to fund your investment, and you get a high-quality real estate investment at the same time, increasing the asset value of your portfolio.

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Harry Boer:

Is the SPV an offshore vehicle?

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Alex (AssetBlock):

It depends on the opportunity, what our partner is comfortable with, and who the interested developers are.

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James:

Hey guys, your thoughts on the state of the real estate market in Canada? Do you plan on expanding there?

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Jay (AssetBlock):

I wouldn't by any means call us experts on the Canadian real estate market, but we're certainly open to partnering with folks who are so it's certainly a possibility!

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Mike:

Was it hard to persuade real estate owners to consider working with blockchain?

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Alex (AssetBlock):

That’s a great question. Short answer is yes. It’s been difficult to work with a very established industry and move them mentally to new technology. However, for our partners they see AssetBlock as a key funding source for them, allowing them to expand their portfolio more rapidly. So we find ourselves obfuscating as much of the technical work as we can to deliver an experience that is similar to what they are used to.

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Harry Boer:

How are you going to manage the volatility of the crypto market?

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Jay (AssetBlock):

The volatility of the market is certainly a consideration, but the uncorrelated nature of the real estate market is actually a stabilizing factor that works in our favor. We're working with a partner for providing loans and they’re responsible for their own margin calls built into the loan agreement, by leveraging your crypto you're hedging against a potential downturn by having a potential uncorrelated-money-making investment in your portfolio. As they say, diversification is key.

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Jose Garcia Caballero:

Do you actually borrow cash?

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Jay (AssetBlock):

No, we don't borrow cash, but the investor could by choosing to leverage their crypto for cash.

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Benjamin Lim: 

Which countries do you think will take some time to adopt such a service, besides the US with their laws? For example, international investors in South Korea.

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Alex (AssetBlock):

An investor in South Korea could invest on our platform, all depends on qualifications of course. Our investments are focused in the US today as it’s the market we are most familiar with.

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Daniel:

So for those of us who aren't aware of SPV, does that lower barrier for entry for ''retail'' or is that different? 

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Alex (AssetBlock):

To get to US-based retail investors you need to work within the framework of the Jobs Act. This means using one of the exemptions provided by the government. 

A good example is: https://www.seedinvest.com/blog/jobs-act/raising-capital-reg-a-mini-ipo

The problem is that doing this is quite expensive, it’s basically an IPO.

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Daniel:

So technically you have the framework in place for international investments and not stuck to US alone! I think that's an important point which technically means AssetBlock is global though slightly limited outside US.

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Alex (AssetBlock):

Not really limited if an investor qualifies. We can’t take money from the US sanctioned country list of course, but that all falls into international AML (anti-money laundering) law.

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Ross:

Here in Latvia real estate is stagnating. From your experience, what should be done (on a government level) to make it attractive for foreign investors?

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Alex (AssetBlock):

I am not qualified to answer the question. You stumped me/us. Let me look into it

I need to learn about what’s been attempted before spouting ideas based on successful schemes (e.g. opportunity zones) here in the US.

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Jose Garcia Caballero:

Are there liquid secondary markets for real estate related security tokens? Where?

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Jay (AssetBlock):

The market is too immature to say that we're in a fully-developed place right now when it comes to real estate securities yet. A company like tZero is someone that we're keeping our eyes on when it comes to STOs and the exchanges that might pop up to allow liquidity options for investors on our platform, so more to see there I'm sure as the market develops. 

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Benjamin Lim:

1. Would these tokens that are assigned towards the investors be locked in a smart contract, can one liquidate when he wishes or it follows the terms.. also, these tokens won't be able to be traded in the open market would it?

2. What is the projected timeline for integrating and going fully live?

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Alex (AssetBlock):

1. Tokens will be assigned to investors, but have lockup mechanics. We will disable the ability for them to be transferred during the gov’t mandated lockup period (e.g. for RegD it’s 12 months). After that, liquidity could be an option. A key factor in a real estate investment is when have you seen the cash flows and appreciation needed to get out. For most people, that’s >12 months so even if they could get out, it wouldn’t make economic sense

2. As soon as named asset support goes live, we will be ready as we are working closely with the team. we have our own standard ARC-1 that we used to generate requirements for Algorand’s official project, but don’t really want to use it for a few months and then shift to the on-protocol product.

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Bilal Brahim:

Could you describe at a high level the process from investment to returns for a 50000$ and how the crypto comes into play at different stages?

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Jay (AssetBlock):

Unfortunately, the answer to your question is on a deal-by-deal basis as far as returns go. Crypto would enter the picture at the beginning when you're choosing to leverage or pay with it upfront for the investment itself, but we can also see a world where investors who choose to receive distributions could opt to receive them in cash or crypto if that's something that folks are interested in.

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Russell Fustino: 

Not sure this is applicable, but as for rental properties to invest in… Would investing in ownership of  AirBnB properties (lower cost, but high volume perhaps) for rental income come into play perhaps? or is the model more, for AssetBlock to use larger retail rental/hotel properties?

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Jose Garcia Caballero:

For me the point is to democratise by tokenizing real estate assets, not only for retail investors but for small entrepreneurs too. I don't really see the point, further than avoiding some legal issues, in implementing blockchain for accredited investor nor corporates.

But without secondary markets, I don't see the value in tokenizing.

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Alex (AssetBlock):

Yes, that is really democratization. We will get there.

The goal is to get to a place where you can open investments more broadly. There are both legal considerations and practical ones. If you only raise $1K from someone and the investment is $1M… you need a TON of investors. If we only have one week to fundraise, we have to have achieved scale in order to not lose the deal and the partner.

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That’s all from the AssetBlock AMA! We thank Alex DiNunzio and Jay Ciruolo for taking time in attending AMA! To learn more about AssetBlock head over to their website https://assetblock.com


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